October 01, 2010

PokerStars Sells Out Its Washington Players

The poker world is abuzz with news of PokerStars abrupt decision yesterday to block residents of Washington state from playing for "real money" in PokerStars tournaments and cash games (hat tip to the first source to reach me with the news via Twitter, the esteemed folks at Pokerati.com). The ban includes players with a Washington address on record regardless of where they are playing, as well as players physically present in Washington state regardless of state of residence. The ban also prevents those same players from participating in any play money activity with PokerStars if any cash prize is awarded for such play. According to a PokerStars FAQ page, FPPs, tournament tickets/dollars, and similar earned bonuses will be converted to cash equivalents, and players will be able to withdraw or transfer money in their accounts.

In its official statement, PokerStars pinned the blame for its decision squarely on last week's Rousso decision by the Washington supreme court which rejected a constitutional commerce clause challenge to the validity of the 2006 statutory ban on all online gambling in the state:

PokerStars today announced that it would cease providing real-money poker to residents of Washington State. To date, PokerStars has operated in Washington on the basis of legal opinions where the central advice was that the state could not constitutionally regulate Internet poker, or at least could not discriminate in favor of local cardrooms and against online sites. Last week, however, the Washington Supreme Court for the first time rejected that position and upheld the state’s Internet gaming prohibition.

In light of this decision, following extensive consultation with our legal advisors, we believe that the right course of action is to now block real money play by Washington residents on the PokerStars.com site. This policy will remain in effect until the law changes or subsequent legal challenges succeed. ...

The timing of the PokerStars pullout from the Washington online poker market is rather curious. Although PokerStars wants to claim that their decision to block Washington residents was required by the recent Washington supreme court decision, the actual timeline of events shows that dog won't hunt:

Online poker in Washington will remain illegal even if appealed to the U.S. Supreme Court, unless and until the U.S. Supreme Court grants certiorari and reverses the Washington supreme court decision (two highly improbable events).

For PokerStars to tie its decision to pull out of the Washington state online poker market to the Washington supreme court's Rousso decision is beyond disingenuous. PokerStars has been violating Washington state gaming laws since at least the enactment of the online gambling ban, and most likely as long as it has been in business. Notice that PokerStars itself never bothered to directly challenge the Washington online gambling ban. Instead, PokerStars was aware of the enactment of a statutory online gambling ban, and a series of court decisions affirming the validity of the statute, yet continued to blatantly operate its business in violation of that statute. There was nothing magical about the Washington supreme court ruling that suddenly made online poker illegal in the state. The PokerStars withdrawal is all about creating the appearance of caring about state gaming laws, while generating a smokescreen to hide its past blatant disregard for those laws.

So, why would PokerStars choose to ban Washington residents now, rather than four years ago? The smart money is on HR2267, the federal online gambling bill which only passed out of committee in the House of Representatives in late July.** HR2267 includes a so-called "bad actors" provision which would preclude from any federal online gambling licensing any current site that has operated in violation of state or federal laws. Now, I happen to think that current online poker sites are in fact violating gambling laws beyond Washington's statewide ban, but that's a discussion for an upcoming post.* In any event, four years ago, the status quo of no federal regulation coupled with benign neglect by state governments enabled online poker sites to continue operations with little risk of criminal liability. In fact, over that timeframe, PokerStars and Full Tilt have transformed themselves from marginal bit players into the two largest players in the U.S. market. So, it was clearly in PokerStars' business interests to pretend they were in full compliance with state and federal gaming laws, including Washington's outright ban on online gambling.

Times change, however, and federal licensing is now moving closer to reality. Yet federal licensing seems likely to occur only with the support of current brick and mortar gaming giants (Harrah's, MGM, and various tribal casino interests) who will demand a "bad actors" prohibition. So, PokerStars' current business interests require it to pay more than lip service to the legality of its operations. Thus, purely as a business decision, PokerStars can withdraw now from the Washington market using the Rousso decision as cover for its change in policy, at the relatively minor cost of sacrificing a small number of players and associated revenues, in exchange for the appearance of complying with state gambling laws and a better shot at avoiding a "bad actors" designation if federal licensing ever becomes a reality. Missing out on Washington state revenues for a few months or years is a small price to pay for a better shot at a lucrative federal license down the road, which may be the only way for PokerStars to maintain its dominant position in the lucrative U.S. market.

As always in poker, it's all about the money.

----------------------------------------------* I have a couple of posts coming over the weekend related to two issues: a) Was the PPA stupid to bring the Rousso case?, and b) Does the Rousso decision really change anything in terms of whether online poker is legal? In the meantime, there is some interesting reading in the 2+2 forums on the PokerStars withdrawal from the Washington market, HERE, HERE, and HERE. It's interesting to note how many Washington poker players apparently had no clue about the statutory ban, the Rousso case, or the Washington supreme court decision.

** EDIT (1 Oct. 2010): The original text stated HR2267 passed the House, instead of merely the House Financial Services Committee. As reader Local Rock pointed out in the comments (and as I noted in an earlier post about the bill), there is a significant difference between passing out of committee and passing the entire House.

3 comments:

Umm, you mispoke. HR2267 did NOT "pass the House of Representatives" and is in fact nowhere remotely near passage in the House, or even likely to ever be 'given a rule' by the House leadership to be brought to the floor for any consideration by the body.

I'm sure you must have meant to refer to Rep. Frank's Financial Services Committee reporting it out, which is a very early stage of the process of attempting to pass legislation, and clearly the easiest to attain, especially with the chair being a principle sponsor. It's similar to the old saw among lawyers about a prosecutor having the power to get a grand jury to issue an indictment of a ham sandwich. There are other committees of jurisdiction which have taken no action and almost certainly won't, the Speaker is opposed and can unilaterally prevent bringing it to the body (and has stated she will do so) and large majorities of both parties remain opposed.

Congressman Frank is perfectly aware this bill is going nowhere, but gave his constituency a gesture.

Can you blame P Stars? It's always been a wink, wink, nudge, nudge situation. Actually I blame the B&M places more because of their pushing for the bad actor clause, mainly to drive the current sites off the grid and leave the field wide open for themselves. As you say, it's about the money and no one comes off smelling like a rose in this fracas.

@ Local Rock: Good catch re HR2267. I was a little pressed for time at the editing phase, and that rather important detail slipped past me. I have corrected that paragraph.

I think you are also correct that the bill likely is going nowhere fast, given the political climate, the upcoming elections, and the lack or progress by other Senate and House committees. So, status quo going forward, most likely.

@ Wolfshead: Yeah, lots of money means lots of people looking to get their piece. PokerStars flouted the law to cash in after Party Poker bailed out, and the B&M casinos are looking to be the next gang to take over the U.S online gambling turf. And the players get screwed in the process.